Mortgage Options for the Self-Employed

If you are a self-employed person, chances are that you will be facing a pretty tough time when looking for a mortgage. Most lenders simply do not favour self-employed people. They are concerned with the notion that you may not be earning a steady enough income to make the monthly payments on time. Also, there is a lot of additional paperwork they have to deal with in order to lend money to a self-employed individual.

The hurdles you will face:

The hurdles you will face

It is safe to say that you will face a lot of hurdles in finding a good mortgage plan for yourself. You will most likely end up paying higher interest rates than others with a steady and verifiable source of income. You will also be unable to shop around for better offers because there will be only a few willing to work with you. It will be a very difficult process.

Options for you:

In recent times, more and more banks are shying away from risky investments. So be ready to face even more reluctances from lenders. Still there are a few options that you can try. One of them might work out best for you.

Maximize your credit score:

Self-employed or not, the best chance to getting a mortgage is to have a high credit score. It will make you a highly favourable candidate. You can get approved for a loan and may also qualify for lower interest rates.

A large down payment:

The bank will feel a lot more at ease if you pay a large amount of money at the start. They will rest assured that you will not run away if you suddenly face a financial crisis.

SISA (Stated Income/Stated Asset) mortgage:

A stated income loan is sometimes also called a low documentation loan.

In this type of mortgage, you will tell the bank your income and they will not verify it on their own. However they may try to verify the sources of your income.

No documentation loan:

In a no documentation loan, your bank will not try to verify any of your income information. This is the riskiest for the lenders so you will paying a very high interest rate than other types of mortgage plans.

Emergency cash reserves:

It is always a good idea to keep a significant cash reserve. It will convince the bank that you will be able to make your payments even if your business suffers a temporary loss.

Provide complete documentation:

You should be willing to provide your complete documentation at all times. This includes the profit and loss statements of your business, the previous years’ tax returns and balance sheets.

Pay off your debt:

Pay off your debt

It is best to clear all of your debt payments before getting a mortgage. It might help you in getting a larger loan amount.

Your self-employment track record:

It is advisable that you completely establish yourself in the self-employment business. If you have an excellent track record, take along the documented history and the lender will be more willing to take a chance with you.

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